Blog: Ending Healthcare Payments: Bursting the Balloon or Just Squeezing It?

President Trump has threatened to cancel federal health insurance payments called “cost-sharing reductions.”  He hopes this collapses the Affordable Care Act’s health insurance exchanges, creating leverage for further repeal negotiations with recalcitrant Senators and Congressmen.  However, the Congressional Budget Office (CBO) reported that ending these payments would actually increase federal costs by $194 billion over ten years and cause a million people to lose health insurance next year.

Currently, insurers participating in the health exchanges must assist members with low or moderate incomes – below $50,000 for a family of three -- by discounting deductibles and copayments.  The issue at stake is whether the federal government will continue to reimburse insurers for these payments, as it has since 2014.  As CBO explains, ending the payments would force insurers to raise monthly insurance premiums by about 20 percent.  Since most exchange participants get tax credits to subsidize premiums, this would drive up costs for both consumers and the government.  The President’s threat would end up costing taxpayers more, not less. 

An old health policy adage holds that efforts to lower healthcare costs can be like squeezing a balloon.  Squeezing one part just causes another part to expand.  The President unrealistically expects that executing his threat would burst the balloon, forcing negotiators to the table.  CBO instead finds that efforts to cut cost-sharing reduction payments will result in higher insurance premiums and federal tax expenditures.  The balloon won’t burst, it will just bulge out, costing taxpayers and consumers more.

Displaced costs could bulge out somewhere else too.  I help govern the District of Columbia’s health exchange as a board member and chair a working group considering how to respond to new ACA challenges.  I also recently testified to a legislative commission meeting in Maryland pondering the same issue.  In both states, and I’m sure in many others, officials worry that state funds might be needed to cover the payments if federal funds are cut.  Squeezing the federal balloon could bulge into state pocketbooks too.

There have been calls from both parties, as well as from governors and insurers, for the President to stop issuing threats and to continue the cost-sharing payments.  He should stop trying to burst the balloon – it is more resilient than he thinks – and instead support bipartisan discussions to stabilize and strengthen the health system that has helped millions of working Americans.

Leighton Ku, PhD, MPH, is a Professor and Director of the Center for Health Policy Research at the George Washington University’s Milken Institute School of Public Health.  He is also an Executive Board member for the District of Columbia’s Health Benefit Exchange Authority.

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